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Life science IPOs fall in first half of 2016

The number of life science IPOs fell in the first half of this year, compared with pharma and biotech IPOs in the comparable period in the previous two years, a new report shows.

 

Summer is a good time to review investment activity for pharmaceutical and biotech companies in the year so far and a new report shows that there’s still life for life science IPOs.

More life science companies went public in the first half of the year than tech companies, and there are more of the former than the latter waiting in the pipeline. But a bigger-picture view of the numbers shows an overall slowing trend for both life science and tech IPOs, and depending on the sector. In fact there are different factors behind the decisions driving these companies to go public.

A total of 16 life science companies successfully completed an IPO in the first two quarters of 2016 compared to just four tech IPOs, according to a new report from technology law firm Fenwick & West. While IPO activity has been stronger in the life sciences sector, the tally marks the lowest IPO total for pharma and biotech companies at the halfway mark of the year for the last three years. In the first two quarters of 2015, 37 life science companies went public. In 2014, 43 life science companies went public in the first half of that year.

Daniel Winnike, a partner based in Fenwick’s Mountain View, California office, said that stock market declines, uncertainty about global market conditions, and weaker corporate earnings contributed to unenthusiastic investor sentiment. As such fewer companies filed to go public. Not only are fewer life science companies filing for IPOs compared with recent years, the ones that do so are having a harder time getting the price that they want for their offering, Winnike said. Most of the deals priced below the midpoint of the range that the companies set in their preliminary filings, the Fenwick report shows.

Despite cutting the price for their IPOs, Fenwick notes that more than half of life science deals rose in their first day of trading. The median price for life science IPOs in the first half of 2016 was $15.70 per share, up from $13 per share in the second half of last year. By comparison, the median stock price for technology IPOs in the first half of this year was $13 per share, down from $14.50 per share in the second half of 2015.

The life sciences IPO with the largest gain was Watertown, Massachusetts-based Syros Pharmaceuticals, which saw its stock close 45.2 percent above its IPO price on its first day of trading. Intellia Therapeutics, based in Cambridge, Massachusetts, soared 22.8 percent on its first day; Reata Pharmaceuticals in Irving, Texas, rose 18.8 percent.

On the flip side, the life sciences company with the steepest drop from IPO price to first day close was Alpharaetta, Georgia-based Clearside Biomedical, which saw its stock nosedive 53.3 percent. Oncobiologics, based in Cranbury, NJ, was close behind with a 50 percent price decline.

Fenwick notes that the SEC has on file 34 life sciences registration compared to just 20 for high technology. But Winnike said the purpose of the Fenwick report is not pitting life science companies against tech companies in a head to head comparison. The firm gathers data on tech and life science IPOs because these sectors make up the bulk of its client base. Winnike added that it can be misleading to compare tech and life science IPO figures and interpret strength or weakness in the sectors.

Most life science companies going public are pre-revenue and they face a long regulatory path of clinical trials and FDA approval ahead of them. An IPO is part of the cycle of capturing the funding that they need to continue on this path, Winnike explained. By contrast, tech companies that go public are usually already bringing in revenue from a product or a service, so unlike biotech and pharma startups, they don’t need an IPO to raise cash to support their ongoing activities.

“They’re not terrifically comparable,” Winnike said of the two sectors. “They typically have very different dynamics.”

When life science companies do go public, they raise smaller amounts of money than technology companies do, the Fenwick report shows. There were no blockbuster deals life science deals completed in the first two quarters of 2015, which saw deal sizes ranging $35 million to $250 million, according to Fenwick. And the firm notes that in order to pull off their IPOs, life science companies increasingly turn to insiders to buy additional shares in the stock offerings. In the first half of this year, 75 percent of IPO deals had participation from such insiders — directors, company officers, and others who already invested in the company. Just half of tech IPOs in the first half of the year had insider participation. Fewer tech companies are willing to turn to insider participation in order to pull off an IPO, Winnike said.

Fenwick has produced its half-year and full-year reports on IPO activity since 2013. The firm compiles data for its report from securities filing and stock-trading price data.

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